DeAnne Julius, Chatham House and former MPC member
Those countries that manage their policy response best will recover soonest from this global downturn. But the optimal response differs between countries depending on the vulnerability of their economies to global financial strains. Countries with relatively little household debt – such as Germany – are not as exposed to the virulent financial transmission channel as many others, although Germany is more exposed to the fall in world trade. The eurozone as a whole does not need the extreme monetary loosening that the US has put in place. Countries with substantial budget surpluses going into this recession – such as China – are also less likely to suffer longterm damage from expansive fiscal policy than those – such as the UK – that entered the recession already in deficit
Philip Booth, IEA:
The US because it has the most liberal labour market regulation.
Mike Wickens, York University:
In the global economy there are two different effects. Germany and China are only suffering because of loss of exports. The US and UK have domestic recessions. Germany and China therefore depend on the US and UK economies recovering, but their recessions won’t be as bad as those of the US and UK.
Douglas McWilliams, CEBR:
China. The recession there is essentially a cyclical phenomenon. When your ‘recession’ merely means a decline to 7 per cent growth, you don’t get the deflationary fears and the pervasively negative impact on sentiment that you get when recession means more than a year of negative growth.
Tim Leunig, LSE:
It is worth noting that the predictions of people like the IMF do not show a recession in emerging economies. It seems likely therefore that they will be the people who will recover first, since they will not do as badly as developed economies.
Within the developed world countries that have the most flexible economies are likely to recover first. Even though the US is going to go to some pretty horrible times, I would still put money on the US recovering before Japan, and probably before Italy as well. It is in downturns that having a flexible economy is most useful. The next five years will also give good evidence on whether the euro is a real and horrible constraint on some countries in Europe, and whether the Labour government's minimum wage legislation is in fact bad for jobs. The fact that the euro has not been harmful so far, and that the minimum wage has not been harmful for employment so far, does not prove that either of them will not be harmful when a downturn comes. Indeed, this will be the acid test for both.
Julian Jessop, Capital Economics:
Short answer - Asia, notably Japan and China, from mid-2009
Three factors will play a part here.
The economies which were first into recession and therefore most advanced in the cycle might have the best chance of recovering first. This factor alone would point to the US and Japan. The US housing market in particular should start to level out soon, whereas there are still big falls to come in house prices across much of Europe. The Japanese economy has actually been the weakest over the last two quarters.
Second, which countries are likely to see the largest policy stimulus. Again the US stands out. US interest rates have already been cut to 1 per cent (and will be cut again this month), the Fed has been relatively quick to adopt unconventional measures of monetary policy, and the Obama team is planning a fiscal stimulus which might be worth as much as 4 per cent of GDP – at least twice the size in most other major economies. But the Chinese government could also do a lot more if required to stimulate domestic demand.
However, the third factor is likely to be most important – which countries have been least affected by the financial excesses and high indebtedness of the credit boom. This is where Japan and China probably emerge as the winners (followed perhaps by the euro-zone). The US economy may enjoying a much larger stimulus, but it needs it because the underlying economic problems there are so severe. Japanese consumers are more likely to spend the boost to real incomes from lower commodity prices on other goods and services, while corporate and financial Japan is in relatively good shape to benefit when global demand does pick up (especially if Asia as whole also does well).
Jonathan Haskel, Imperial College Business School:
The US with its flexibility.
Oliver Marc Hartwich, The Centre for Independent Studies:
Australia will recover first. Its public finances are in an enviable shape compared to, say, the UK. The weak Australian dollar helps exports, the banks are well regulated, and China is still close and resource hungry for Australian mineral exports.
Michael Artis, Uni Manchester:
The US and the UK are the most flexible economies, but both Have taken a big hit because of the prominence of finance in their Economies and the degree of household indebtedness. This makes it hard to say – but it could be that these two economies will experience the deepest, but most short-lived recessions whilst the eurozone economies (esp. Germany) will decline by less but take longer to pick up (see the 2000-2001 experience)
Stephen King, HSBC:
The most worrying feature of the global economy currently is the synchronised nature of the slump. No country appears to be immune. The countries which appear to be most likely to offer support through policy initiatives are the US and China, but what remains unclear is the extent to which the underlying fundamentals of these countries have deteriorated. The US was first to recover in 2002, largely because of aggressive policy action, and a similar enthusiasm is going to be shown in 2009. This time, though, policymakers have to confront a failed financial system, which suggests beneficial policy effects are in danger of being swamped by offsetting downward forces. Perhaps the message should be "beware false dawns".
Nick Bosanquet, Imperial College:
Asia and Latin America. There is evidence of a rapid bounce after the 1980s/1990s default crises. They are more flexible economies with higher long term growth rates and access to capital from family and non-banking sources. The speed of recovery will depend on freedom for economic initiative and for development of new products/services.
John Calverley, Head of research, Standard Chartered
I expect the US to recover first – because of massive fiscal and monetary stimulus, a rapid adjustment ongoing in the financial sector and also because the US was the first in. House-building, for example has been falling for over 2 years and is near the bottom already. Asia should be close behind – Asia is suffering a cyclical slowdown, rather than the structural crisis that the US and UK have from the whole house price bubble/high household debt/low savings debacle. Europe will be slow as usual, waiting for exports to lead the way. The UK is likely to be slow too because it had a bigger housing bubble than the US, its leading sector, financial services is in a deep downturn and also because it did not have a downturn in 2001-2.
Alan Budd, Provost of Queen's College, Oxford, former chief economic adviser to the Treasury in 1990s and MPC member
Don’t know. This is an extraordinarily synchronised recession.
Patrick Minford, Cardiff Business School
The links across the world are now so tight that we are observing high synchronicity. I expect the US to come out first, followed by the UK; Europe will lag a bit as its monetary policy has lagged. Emerging markets will respond rapidly to the US recovery.
Dieter Helm, New College Oxford
It is unlikely that there will be any region recovering in 2009.
George Magnus, UBS
It ought to be China, where there the causes of the downturn are more traditional than in the West, provided that China’s stimulus programmes and exchange rate policy are designed to strengthen domestic demand. I don’t see any other major emerging markets in a position to recover early, and Europe seems intent for now at least not to use contra-cyclical policies to any meaningful degree. A global upturn rests on the prospects for the US, which is why the recovery won’t happen in 2009.
David B Smith, University of Derby and Beacon Economic Forecasting
Countries with relatively modest government sectors, sound public finances, and lightly regulated labour markets are most likely to enjoy the supply-side flexibility needed to respond well to the present crisis. This suggests South East Asia will enjoy better prospects than the US or the eurozone. President-elect Obama’s neo-Keynesian policies will probably crowd out the US private sector and lead to very disappointing output and employment responses, especially if there are noticeable Ricardian-equivalence effects. However, massive demand stimuli have been applied to the US economy. The likely outcome will be some output recovery, but a deteriorating trade situation, and the emergence of accelerating inflation at a relatively early stage of the upswing.
The euro-zone has enjoyed sounder monetary policies over the past decade than the US or UK and is likely to be more stable in consequence. However, national governments are now pursuing increasingly divergent fiscal approaches and yield spreads over Germany are widening. This fiscal divergence could threaten the continuance of monetary union in extremis. Gordon Brown’s misguided policies have undone all the good work carried out by Labour and Conservative governments between 1976 and 1996. It is impossible to be optimistic about the long-run prospects for this country and the ‘English economic sickness’ is likely to return with a vengeance. However, this does not preclude a cyclical ‘mini-bounce’ in late 2009 and 2010 as the world economy recovers.
Andrew Simms, New Economics Foundation
This may sound dramatic, but there is no guarantee that any part of the world will ‘recover,’ at least in the conventional sense. If recovery is measured only in terms of conventional GNP/GDP growth driven by personal consumption, we have a problem. The world faces multiple resource and environmental constraints. Globally, there is a flexible, but ultimately finite biocapacity to provide resources and absorb waste. Each year we exhaust it ever earlier. Measured as a calendar year the world went into ‘ecological debt’ at the earliest ever point in 2008, on 23rd September. For example, the leading climate scientist, James Hansen of NASA, recently published new research showing that if we wish to preserve the conditions under which civilisation emerged, rather than stabilising at some future higher concentration of greenhouse gases in the atmosphere, they need to be reduced from current levels. This places in unavoidable barrier to global growth. Even more so if we wish to see growth in parts of the world where absolute poverty is still widespread. It means rich country consumption will have to go down even more.
I’m tempted to say that the parts of the world set to recover first, will be those which pursue green new deal type policies. A different way to answer the question would be to point out, instead, that those parts of the world least integrated into the current almost system-wide collapse, or with the greater self sufficiency and capacity for resilience will ride out the near perfect economic storm best. And, if you want to know where those places are, it is probably those small island states who over generations have learned to cope with relative economic and geographical isolation.
Howard Archer, IHS Global Insight
The US and China, because they are planning big, bold and swift fiscal action.
David Frost, British Chamber of Commerce
China. Their fiscal position is sound, meaning that they have the ability to stimulate demand further, following measures already taken. Their return to double digit growth will be affected by how quickly their biggest export markets recover.
George Buckley, Deutsche Bank
Our big picture view (see other World Outlook ) is that in the long-run EM demand will be the driver of the world economy.
Robert Barrie, Credit Suisse
It's possible that the US will recover first on the view that it was the first into recession and, so far, has probably done the most to get out of it. I'd put the UK second - we are not among the pessimists on the UK economy and I can't see anything in the numbers that suggests it should do any better or worse than anyone else. I'd put the euro area third on the view that it has probably done less than the US and the UK to get out of recession. That's not necessarily a criticism, by the way - there's a view in economics that says if you try too hard to get out of the current recession you'll only make the next one worse. On that score, I can't help thinking that the problems we are dealing with now have something to do with the last period of very low US rates.
David Page, Investec
Different parts of different economies will recover at varying times. We see three key areas.
1. There is already some sign that US housing market activity may have found a bottom. The sharp fall in housing starts is sharply reducing the new housing stocks, despite soft new home sales. Also home sales seem to be gradually rising, coaxed back by low prices and low mortgage rates. An improvement in credit conditions would help this process. House prices would take some time to flatten off, but this would alleviate some of the pressure on banks balance sheets.
2. The slowdown in China appears to have been severe, but we have been impressed at the scale of stimulus here including PBoC interest rate cuts, a fiscal stimulus totalling around 15 per cent of annual GDP over two years and the direct intervention of China's sovereign wealth fund to support the banking system. More impressive is China's ability to provide more stimulus if needed. This is likely to see some pick up in Chinese domestic demand as one of the first areas of global recovery, which should fan out to provide support to wider Asia and the globe.
3. On a similar note Germany has the capacity, both in terms of government fiscal position and relatively unleveraged households to see a pick up in consumer activity that should bolster domestic demand even against weaker external demand. The German government may be able to encourage an autonomous recovery in the long lacklustre German consumer sector.
Charles Goodhart, London School of Economics and former MPC member
Keith Wade, Schroders
First in first out suggests the US. However, China will not be far behind given the size of its fiscal package.
David Miles, Morgan Stanley
Which part of the world will recover first and why? People are massively - and rightly - concerned about the US and UK. But the policy stimulus in those countries has been very substantial. And while banks might be reluctant - and in some cases unable - to resume more normal lending , the governments have shown a willingness to step in and offset that. So it may be that in the 2 developed economies most vulnerable to the fallout from the credit crunch, growth resumes relatively early. Outside the developed economies we have seen China initiate a major fiscal boost and , like in the US , big increases in infrastructure spending have the scope to be highly productive.
Richard Jeffrey, Cazenove
The US seems most likely to recover first, largely as a result of the policy action now being taken. However, any recovery is likely be be stuttering.
Ross Walker, Royal Bank of Scotland
US. Best of a bad bunch. Greater labour and product market flexibility will ultimately work, but even America is in for a painful year and a sluggish recovery.
Peter Dixon, Commerzbank
If the focus of Asian activity can be switched to the domestic economy, rather than primarily exports, there is the prospect of a more rapid upswing in this region – especially if the Chinese stimulus package represents a real stimulus rather than a mish-mash of measures. The reason for this is simply that the region is less directly affected by the credit crunch than the US and Europe. But Asia will not drag the rest of the world out of the mire. A global recovery will only gain traction once the US begins to grow again – and that is not a likely prospect in 2009.
Diane Coyle, Enlightenment Economics
Oil consumers. And the large markets - US, Eurozone, China, India - because of scale
Karen Ward, HSBC
On the basis of the answer to question 1, I would expect it to be the US because this is where policy has been most pre-emptive and aggressive.
Ruth Lea, Arbuthnot Securities
A tricky question, because it all depends on what policy measures are taken to alleviate the problems in the separate parts of the global economy. But given the determination of the US Authorities (now followed by the UK Authorities) to stimulate the economy and the tardiness of the ECB to act, the US could well be the first to recover. There is (has been?) the view that, because the German economy is not so waterlogged with debt as the Anglo-Saxon economies, the German economy is less vulnerable to recession. But the German economy is perilously dependent on exports to, for example, the US, other EU countries (including the UK) and China. There is the risk, therefore, that Germany’s recovery will lag the US’s recovery or the resumption of fast growth in China. Japan’s economy is likely to be a laggard next year for (partly) similar reasons.
James Knightley, ING
I think the US is looking the best bet for now for the reasons mentioned in my answer to question 1. Oil providing a stimulus of 2 per cent+ of GDP, a fiscal stimulus of 5 per cent+ plus of GDP and with mortgage rates and corporate bond yields now falling - a move set to continue with the Fed's quantitative easing measures, it is not inconceivable that the US experiences a combined fiscal stimulus of close to 10 per cent of GDP in 2009.
Patrick Foley, Lloyds TSB
The slowdown started in the USA and its unlikely that the world economy can pick up without the USA first recovering; the idea that decoupling by major emerging markets can sustain the world economy has clearly been proved wrong.
David Owen, Dresdner Kleinwort
Would say the US (fiscal easing etc). eurozone hit by too strong a euro etc
Gerard Lyons, Standard Chartered
Asia's recovery will be soonest and strongest, with 2010 being the year of rebound there. The near-term downturn in Asia is perfectly consistent with a longer-term positive trend. Africa, too, is very resilient, having not outperformed on the way up.
There are big differences between the advanced economies and some of the emerging countries, particularly in Asia. There are many structural problems in the West, such as the overhang of debt, that suggest the recession may not be followed by an early or strong rebound. In contrast, across many emerging countries, savings are higher and domestic imbalances are not seen, suggesting this downturn may be more cyclical in nature than may materialise in the West. In that case, 2010 is likely to be a recovery year. China, which is slowing sharply now, should benefit from the combination of a huge fiscal stimulus, direct aid to farming areas and easier monetary policy, triggering a recovery in the second half of 2009.
John Philpott, Chartered Institute of Personnel and Development
In all probability the emerging economies will not only experience a slowdown rather than recession but also see the earliest pick-up in growth. Businesses facing difficulty in the advanced economies will accelerate activity into eastern and southern Asia in 2009. This will raise political issues in the advanced economies – President Obama in particular will have to resist protectionist sentiment in the US – but ultimately prove to be good news for the rest of us as China and India truly become the lead locomotives of the global economy.
Simon Hayes, Barclays Capital
US policy holds the key to the recovery. We expect the Fed’s aggressive intervention in credit markets and President-elect Obama’s fiscal package to provide the seeds of recovery in H2 2009. The Fed’s actions are unprecedented: in the past two months alone the Fed has printed over $700bn in fresh money and channelled over $300bn into the direct purchases of commercial paper. We expect a US fiscal stimulus of around $600bn (4 per cent of GDP) to be approved in Q1.
Andrew Goodwin, Oxford Economics
The recovery is likely to be slow across the globe, but of the developed economies we expect to see the US recover first given that their policy intervention has been more aggressive than elsewhere.
Martin Weale, National Institute of Economic and Social Research
I suspect core Europe since this is much less affected than elsewhere by credit imbalances.
Ian McCafferty, CBI employers’ organisation
China will probably undergo a period of sharply weaker activity in the first half of 2009, but should recover rapidly over the rest of the year. It has the firepower for large fiscal stimuli, seems already prepared to use that firepower and has significant pent-up sources of domestic demand. If the authorities can help reduce the domestic savings ratio by improving social security systems (as looks to be on the cards) the rise in the consumption/GDP ratio could be very significant.
Malcolm Barr, JP Morgan
Probably the US, because of the magnitude of the policy response and that it is further along in its housing adjustment.
Michael Devereux, Centre for Business Taxation, Oxford University
Any recovery - amongst countries hardest hit, at least - may have to be led by the USA. The USA has been in recession longer than other countries, and past experience is that it has been quicker to recover from recessions.
Lena Komileva, Tullet Prebon
The US is likely to lead a recovery based on:
1) An aggressive start to the de-leveraging process in the broad economy in 2008.
2) An aggressive policy response that utilises (well developed) monetary, fiscal and regulatory resources simultaneously; a relatively effective relationship between the policy apparatus and the financial industry.
3) A policy approach that aims to encourage orderly de-leveraging and to preserve and strengthen financial micro-infrastructure, including core institutions as well as markets (post-Lehman).
4) A diversified global pool of investors for US government debt.
5) Well developed (elastic) domestic demand.
Simon Rubinsohn, Royal Institution of Chartered Surveyors
The unprecedented response from the US administration and the Federal Reserve could leave North America in pole position to record some signs of economic recovery later in 2009. China may also see a pick-up in activity rather earlier than many others with the global turmoil forcing the authorities to direct policy more effectively in the direction of strengthening the contribution of domestic demand. With excessive savings, they are better placed than many to deal with the current crisis.
Ray Barrell, National Institute of Economic and Social Research
The banking crisis has been less bad in the Euro Area – if there are no policy responses it will recover fist. The German economy in particular avoided the house price asset boom, and is more affected by the trade downturn than by the banking crisis. However politicians there are stubborn
John Van Reenen, Centre for Economic Performance, London School of Economics
A lot of guesswork as usual. China and India probably due to the remaining potential for catch up growth. The US will have a deeper recession than elsewhere but for the reasons in 1) above America will probably bounce back sooner. The UK recession will probably be worse as the financial sector is so large. Germany and Japan’s will be shallower than US/UK but last for longer.
Howard Davies, Director, London School of Economics and former MPC member
Monetary easing has been very aggressive in the United States, rather earlier than in the UK or continental Europe. That ought to bring forward the US recovery. And the superior dynamism of the US economy will help, too. That is where I would look for the first signs of recovery.
John Muellbauer, Oxford University
The US will recover first despite the continued fall in house prices, problems in banking, high levels of household debt, etc etc. US price flexibility and policy competence, and the fact that the US led the slowdown, will also imply it will be the first economy to stabilise. The unorthodox monetary policy measures I called for in the FT on Nov 25, on the Economists forum. The world’s central banks must buy assets and 28 November on voxeu: Time for unorthodox monetary policy for a full explanation, coincided with a major step on the same day by the Fed announcing it would buy MBSs. There will be more of this kind.
Amit Kara, UBS
The US should lead the way out. Monetary policy has been proactive and it seems that the Obama administration will provide a large fiscal boost. The US housing market should also bottom out quicker than other markets, especially because the adjustment in prices and activity is at a more advanced stage.
Peter Spencer, York University
The conventional answer would be the Peoples Republic and East Asia, which is not beset by these credit market problems. However, I suspect that it may just be the US. I don’t see much of a recovery elsewhere without a recovery in the US economy and financial markets (which play a pivotal role in the flow of world savings deposits to debtor countries like the UK).
What we need is someone who can instil confidence in consumers and corporates – is that Obama, Angela or Gordon? We need a new Keynes, an economist that really understands this problem and how to solve it – and I have to admit that the US economics fraternity has the best chance of producing that analysis and that New Deal. The US has a lot of other favourable circumstances, the world’s reserve currency, cheap oil prices…
Steve Machin, London School of Economics
Hard to tell. Arguably some countries have not been so badly affected to date.
Michael Saunders, Citi
Asia and the US will recover first, because of greater policy stimulus.
Helene Rey, London Business School
A historical pattern has been that US recessions have been sharper but shorter than euro area ones. On the other hand the US this time is taking one of the hardest hits so this pattern may not repeat itself.
Ian Plenderleith, former MPC member
1) US first to recover, given resilience of its economic structure and new political leadership.
2) See above for concern about China
Willem Buiter, London School of Economics and former MPC member
The US will recover first. They always do! Anyway, they went into the swamp first, and they are acting more aggressively to get out of it. They will succeed in emerging first, however, only by creating so much moral hazard and adverse incentives for future excessive risk taking, that the next major crisis is likely to start in the US also.
Gary Styles, Hometrack
It looks likely to be the US. Policy was eased earlier in the US and the US economy has the ability to show resilience in these difficult times. The New US President has everything to prove.
Kevin Daly, Goldman Sachs
I think the key to an early recovery is aggressive easing and, in this regard, the collapse is Sterling actually puts the UK in quite a strong position.
From mid-2007 to mid-2008, there was great variation in how the credit crunch effected economies – specifically, those with housing-related spending imbalances faired relatively badly. However, one of the distinguishing features of the latest (post-Lehman Brothers) phase of the credit crunch is how uniform the impact appears to have been. Given similar slowdowns, think it is difficult to justify some of the large exchange rate moves that we have seen. But weaker currencies are likely to prove a blessing for those that have received them.
Sushil Wadhwani, Wadhwani Asset Management and former MPC member
It is likely that the US will be the first to recover. Policy action has been most encouraging in the US. In the medium term, though, the US may experience a longer period of slow growth, as savings are rebuilt, and fiscal policy tightened to put the public finances on a stable long-term footing.
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